Personalized financial-planning services for union members
Personalized financial-planning services for union members
Proactive Advisor Magazine: Paul, what was your path to becoming a financial advisor?
My father had a big influence on my life and was a great person with an interesting professional story. He learned about electronics and communications in the service and later had a diverse career in technology. He came in at the early stages of the computer industry and ended up developing several important patents. Eventually, he started his own successful firm, which was later bought out by a large company.
I believe seeing my dad’s career influenced my choice of majors in college, and I graduated with a degree in mechanical engineering from the University of Minnesota. This led to positions as a sales engineer and manager for three well-known companies, primarily in the industrial controls field.
After 20 years in this career, I felt, for a variety of reasons, that I wanted to make a major change. I looked at several large, national financial-services firms and was able to secure a position with the one I felt offered an in-depth training and support program. That turned out to be a good decision, as the firm I was with provided exposure and training to comprehensive financial services, not just one or two product areas.
From there, I had a few relationships with different groups of advisors, gaining valuable knowledge and experience from each situation. I technically started Humphrey Financial in 2014 but have been an independent financial advisor for 19 years. The concept of independence is something that is very important to me. I want to have the ability to offer my clients products and services from any provider that make sense for their situation. I embrace the idea of sitting on the same side of the table with clients in an impartial manner as we work together to help them plan for their financial future.
Talk about the types of clients you work with.
Ever since I became an independent advisor, I have had a somewhat unique business model. I focus on the employees of companies or nonprofits, with a special emphasis on entities that offer defined benefit plans. That is not always a requirement, and I work with many companies that have 401(k)s or 403(b)s. My first point of contact is usually the human resources department at a company or, in some cases, union management. I work very closely with several unions in our area, and my wife and I are members of a union.
My goal is to receive the permission of a company’s management to hold on-site financial-education workshops for their employees. For some of the larger companies I work with, I hold a series of workshops over the course of a year, covering topics such as retirement planning, college planning, household budgeting and debt management, diversification within a 401(k), and other important areas.
The attendance at these workshops is usually strong, and, with the company’s blessing, I offer employees the chance to have a brief one-on-one conference with me if they would like. We talk broadly about what is going on in their lives financially. If it is appropriate, we will schedule a more in-depth follow-up meeting either at my office or in their home. It is important to include their spouse in that second conversation. We dig into their situation more deeply, and I describe the services I offer. Then we ascertain if there is a good fit. Everyone has their own unique financial circumstances, and I position my services as being highly personalized, with the ability to address a full range of financial-planning issues.
This has been a successful approach to building my practice and establishing long-term relationships. I work with people of all ages, though most are reaching the point in their lives where they are seriously thinking about retirement. One of the benefits of working with employees who have a defined benefit plan is that they are usually on a good trajectory toward funding their retirement needs. Between Social Security and their pension, or two pensions in the case of dual earners, they likely have a very solid foundation for retirement. I wish it were not so, but employees who depend on a 401(k) do not always contribute what they should to the plan or often make poor investment decisions during their work lives. This is not an insurmountable issue, but it can present a planning challenge.
How do you approach the financial-planning process?
Once a client expresses interest in moving forward with a planning relationship, one of the first things I do is explain how I am going to be compensated. This will usually be some combination of commission and fees. For many of the clients I work with, frankly, I expend far more time on the planning process than I might receive compensation for—but that is fine with me. If I can demonstrate to a client that I will add significant value to the way they address their financial situation moving forward, we can form a mutually beneficial relationship for the long term. Eventually, it will all even out.
Retirement planning requires a holistic view of a client’s financial life. In helping clients plan for their retirement, we look at the broad picture and different streams of savings and projected income, including Social Security; retirement accounts, including 401(k)s, IRAs, Roth IRAs, and pensions; and long-term savings. We work to protect assets through risk-managed investment strategies, insurance planning, and taxation strategies.
We start by asking questions to learn about a client and their goals. When would they ideally like to retire? How do they envision their lifestyle in retirement? What are their expected expenses? When they are ready to transition into retirement, how do we strategize about how best to draw income from retirement accounts, and in what priority?
“The key is to develop investment recommendations that are based on clients’ goals, risk tolerances, and time lines.”
We follow a five-step process to help deliver a high level of customization for each client plan.
Step 1 starts in our educational workshops and continues on an individual basis. We provide insights on their existing benefits to help plan participants understand their current situation. This includes all aspects of benefits, such as pensions, 401(k) plans, health insurance, outside retirement accounts, and spousal benefits.
Step 2 is part factual discovery and part learning about a client’s goals, dreams, and retirement expectations. In addition, we discuss additional financial-planning needs such as home buying, college funding, or legacy planning. I spend a lot of time on understanding their risk profile and use planning software that can examine a range of planning assumptions based on factors such as timing of retirement, expenses, various expected return scenarios, Social Security claiming, life expectancy, and so forth. Three key documents are prepared: (1) a current picture of their assets and liabilities, (2) a summary of their potential income streams in retirement, and (3) what their retirement net worth might look like at various points in time.
The task in step 3 is to identify the gaps between what they currently have and what they will need. Here is where we map out retirement-income strategies that we believe will help them reach their financial goals. We look at short-term, mid-term, and long-term strategies for retirement income. Within this, we make some conservative estimates of asset growth and returns needed to meet their required retirement distributions.
Typically, for the short- and mid-term areas we might use actively managed strategies that can help mitigate risk, work toward achieving conservative returns, are liquid, and can use equities and a variety of other asset classes. For the long-term area, we might be able to add more growth-oriented strategies that take on a little more risk for some clients, or we could use conservative guaranteed-income strategies for others—it all depends on what is appropriate for a specific client. We will work with third-party investment managers in many cases to put together customized portfolios that meet a client’s risk profile, have a good track record of historical returns, and can keep investment expenses as low as possible. The key is to develop investment recommendations that are based on clients’ goals, risk tolerances, and time lines. We use our software to assess various return scenarios and attempt to present the appropriate risk-return balance for each client.
Step 4 covers the implementation phase of setting up various strategies for investments, insurance, and whatever else the client may need. Actionable items are reviewed periodically in client review sessions, and, if required, adjustments are made or changes in a client’s situation are addressed.
Step 5 is offering transition assistance at retirement. We can facilitate retirement paperwork; create new accounts; and become directly involved with transfers and discussions with 401(k) plans, pensions, health insurance, and any other client-specific company benefits.
When it comes to client referrals, what would you like a client to say about your firm to a friend or associate?
Our highest probability of developing a new client comes from a referral—they are very important. I do not suggest what someone says about our firm, but I do ask about client satisfaction in review sessions. When I review with a client how they are progressing against their plan objectives, and how our relationship has worked to improve their confidence in their financial future, some strong positives become evident to them. I think developing that client trust and satisfaction is the key to gaining referrals. This grows naturally out of doing our very best for each client.
Using innovative technology for client financial planning
Having state-of-the art planning software builds credibility and transparency in the client-advisor relationship. Paul Humphrey uses a software-based financial-planning methodology that employs innovative technology for holistic financial planning and client communications. Features include the following:
- A streamlined interface for client data collection, allowing for changes in assumptions as life circumstances change.
- A robust risk-tolerance questionnaire and scoring that enhances the suitability of investment recommendations.
- Monte Carlo analysis to stress-test plan assumptions.
- Goals-based assessments of plan options and optimization of cash-flow, Social Security, and tax-sensitive strategies.
- User-friendly graphics charting plan progress and a client portal that can aggregate accounts from different sources.
Paul Humphrey is the owner of Humphrey Financial LLC, which specializes in helping union members and their families plan for their financial future. His firm is highly experienced in “assisting individuals, families, and businesses in their financial-planning and retirement needs.”
A lifelong native of the Minneapolis-St. Paul area, Mr. Humphrey graduated from the University of Minnesota with a degree in mechanical engineering. After a 20-year career as a sales engineer and manager for well-known national companies, he started his second career in the financial-services industry in 1999.
Mr. Humphrey is a Certified Financial Educator (CFEd), a designation from the Heartland Institute of Financial Education. He stays current on best practices in the financial industry through continuing education courses and belongs to the Financial Services Institute. As a member of the Communications Workers of America, Mr. Humphrey says he has the knowledge to understand the unique needs of the union clients he serves.
Mr. Humphrey and his wife have five adult children and one granddaughter. They enjoy outdoor activities, working out, volunteering at their church, and spending time with family. Mr. Humphrey is a lifetime member of the University of Minnesota Alumni Association and is active in the local Lions Club.
Disclosure: Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Investment advisory services offered through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Humphrey Financial LLC and Cambridge are not affiliated.
Photography by Marla Klein